Re: 1/31/01 - [Stockgeneration.com] Internet stock game broke no rules, judge says
Technology: Internet stock game broke no rules, judge says
By MARK PRATT, Associated Press
BOSTON (January 31, 2001 11:36 p.m. EST
nandotimes.com) - A federal judge has rejected the Securities and Exchange Commission's attempts to shut down an Internet gambling site that ran a "virtual stock exchange," ruling the site is clearly labeled as a game.
The U.S. District Court issued an injunction against SG Limited and SG Perfect Limited, which runs "StockGeneration," in June after an SEC complaint that their investment offerings were nothing more than a scam that violated federal securities laws.
But in a decision released Tuesday, Judge Joseph L. Tauro agreed with the company that the SEC overreached its authority because the company did not offer, buy or sell securities.
He cited the repeated use of words such as "winner," "player" and "prize" as evidence the site was presenting itself as a game.
"It is difficult to imagine more clear and forceful language alerting potential participants that they would be playing a game, not making an investment," the judge wrote in the decision.
"Investors" play the game by sending money -- usually checks -- to StockGeneration and then buying "stocks" in fictitious companies with names like "The Fountain of Youth," said Daniel Small, the Boston attorney for StockGeneration.
The player then makes or loses money based on whether or not the company's value decreases or increases. There is no computerized method for the "stock" going up or down; it is done entirely at the whim of the game's managers, Small said.
"It's entirely up to the controllers of the game," Small said. "It's totally chaotic, depending on what the mangers of the game say would be fun that day. It's a game, it's not determined by any outside forces or events."
"I think of it more like a roller coaster ride than a stock market. You pay some money, you have a fun time... then it's over," he added.
The game will be up and running again soon, though it was unknown exactly when, Small said. The Web site was not up as of Wednesday afternoon.
The company's $6.5 million in assets were frozen when the SEC obtained its order to shut down the site, but Small expects those assets to be released.
"This was a case of gross overreaching by the SEC," Small said. "They simply failed to understand the Internet's rapidly developing role in the field of entertainment. We are delighted that the court acted so definitively."
StockGeneration described itself as a virtual online stock market game in which players paid real money for shares in clearly fantasy companies. In its online rules it clearly used language associated with games, the company said.
The company said StockGeneration had more than 325,000 players from more than 70 countries, and had paid out millions of dollars in prizes before it was shut down.
The SEC may appeal the decision.
"We are studying the judge's decision and have not yet made a determination of the next step," said SEC lawyer Linda Bridgman.
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